With distributed solar growing at a record pace, states nationwide are assessing the benefits and costs of this dynamic resource. The implications of these studies couldn't be greater, as cornerstone policies such as net metering are on the line. Join Vote Solar and the Solar Energy Industries Association for a webinar featuring experts from:
* Rocky Mountain Institute
* Interstate Renewable Energy Council
* Rabago Consulting
Review their reports on lessons learned from recent studies and come away armed with a new framework for best practices in cost/benefit study design.
Assessing Benefits and Costs of Distributed Solar Resources
1. ASSESSING
THE
COSTS
&
BENEFITS
OF
DISTRIBUTED
SOLAR
GENERATION
Lessons
&
Best
Prac.ces
from
the
Na.onal
Debate
September
4,
2013
2. Agenda
Rábago
Energy
LLC
Virginia
Lacy
Lena
Hansen
Jason
Keyes
Karl
Rábago
OrganizaEon
Presenters
3. Efforts
underway
to
Assess
the
Costs
and
Benefits
of
Distributed
Solar
GeneraEon
DC
C&B,
or
solar
valuaEon
assessment
underway
or
expected
to
start
in
2014
No
C&B
assessment
underway
4. Contacts:
Lena Hansen, Principal, lhansen@rmi.org
Virginia Lacy, Senior Consultant, vlacy@rmi.org
Devi Glick, Analyst, dglick@rmi.org
1820 Folsom Street | Boulder, CO 80302 | RMI.org
Copyright Rocky Mountain Institute.
2nd Edition published September 2013.
download at: www.rmi.org/elab_emPower
A REVIEW OF SOLAR PV
BENEFIT & COST STUDIES
2nd Edition
Webinar, 4 September 2013
Lena Hansen and Virginia Lacy, Rocky
Mountain Institute
5. 5
ABOUT THIS REPORT
Objective
To assess what is known and unknown about the categorization, methodological
best practices, and gaps around the benefits and costs of DPV, and to begin to
establish a clear foundation from which additional work on benefit/cost
assessments and pricing structure design can be built.
What’s included
This discussion document reviews 16 DPV benefit/cost studies by utilities,
national labs, and other organizations. Completed between 2005 and 2013, these
studies reflect a significant range of estimated DPV value. The report includes:
• Framing of the need
• Identification of broad categories of benefit/cost, and of stakeholder
perspectives
• Analysis findings, in synthesis and for each category of benefit/cost
• Individual study overviews
A REVIEW OF SOLAR PV BENEFIT & COST STUDIES, 2ND EDITION
Download at www.rmi.org/elab_empower
6. 6
ELECTRICITY SECTOR STAKEHOLDERS ARE RECOGNIZING THE IMPORTANCE OF PROPERLY VALUING
DISTRIBUTED PHOTOVOLTAICS (DPV) AND THE CURRENT LACK OF CLARITY AROUND BENEFITS AND COSTS
...RAISE KEY
QUESTIONS
" What benefits can customers
provide? Is the ability of
customers to provide benefits
contingent on anything?
• What costs are incurred to
support DPV customer needs?
• What are the best practice
methodologies to assess benefits
and costs?
• How should externalized and
unmonetized values, such as
environmental and social
benefits, be recognized?
• How can benefits and costs be
more effectively allocated and
priced?
...DRIVEN BY VALUE
UNCERTAINTY...
What if a DPV customer does not pay for the
full cost to serve their demand?
What if a DPV customer is not fully
compensated for the service they provide?
Traditional Cost to
Serve
Customer Bill
$/Year
Cost to Serve
Customer Bill
Cost to Serve
Customer Bill
Customer Payment
Generation Cost
Distribution Cost
Transmission Cost
Other Costs
HEADLINES...
FRAMING THE NEED
7. 7
DISTRIBUTED ENERGY RESOURCES
DISTRIBUTED ENERGY RESOURCES (DERs): demand- and supply-side resources that can be deployed throughout an electric
distribution system to meet the energy and reliability needs of the customers served by that system. DERs can be installed on either the
customer side or the utility side of the meter, including energy efficiency, distributed generation, distributed flexibility and storage, and
intelligence.
WHAT MAKES DERs
UNIQUE:
Siting!
Smaller, more modular energy resources can
be installed by disparate actors outside of the
purview of centrally coordinated resource
planning.
Operations!
Energy resources on the distribution network
operate outside of centrally controlled
dispatching mechanisms that control the real-
time balance of generation and demand.
Ownership!
DERs can be financed, installed or owned by
the customer or a third party, broadening the
typical planning capability and resource
integration approach.
8. 8
DER
service providers
DER
CUSTOMERS
NON-DER CUSTOMERS
SOCIAL EQUITY
If costs are incurred by DER customers
that are not paid for, those costs would be
allocated to the rest of customers.
Conversely, DER customers also provide
benefits to other customers and to society.
BENEFIT AND COST
RECOGNITION AND
ALLOCATION
Mechanisms are not in place to
transparently recognize or
compensate service (be it
monetized grid services like energy,
capacity or balancing supply and
demand, or less consistently
monetized values, such as carbon
emissions savings) provided by the
utility or the customer. To the utility,
revenue from DER customers may
not match the cost to serve those
customers. To the customer, bill
savings or credit may not match the
value provided.
service
$$
FLEXIBILITY & PREDICTABILITY
Providing reliable power requires grid flexibility and
predictability. Power from some distributed renewables
fluctuate with the weather, adding variability, and
require smart integration to best shape their output to
the grid. Legacy standards and rules can be restrictive.
Social Priorities
Society values the environmental and social
benefits that DERs could provide, but those
benefits are often externalized and
unmonetized.
Adapted from RMI, Net Energy Metering, Zero Net Energy And The Distributed Energy Resource Future: Adapting Electric Utility Business Models For The 21st Century
STRUCTURAL MISALIGNMENTS
TODAY, OPERATIONAL AND PRICING MECHANISMS DESIGNED FOR AN HISTORICALLY CENTRALIZED ELECTRICITY
SYSTEM ARE NOT WELL-ADAPTED TO THE INTEGRATION OF DPV LEADING TO IMPORTANT QUESTIONS, DEBATE,
AND CONFLICT
UTILITY/GRID
LOCATION & TIME
Limited feedback loop to
customers that the costs
or benefit of any electricity
resource, especially
DERs, vary by location
and time.
9. 9
BENEFIT & COST CATEGORIES
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
• ENERGY energy
system losses
CAPACITY
• generation capacitytransmission & distribution capacityDPV installed
capacity
GRID SUPPORT SERVICES
• reactive supply & voltage control
• regulation & frequency response
• energy & generator imbalance
• synchronized & supplemental operating reserves
• scheduling, forecasting, and system control & dispatch
SECURITY RISK
• reliability & resilience
ENVIRONMENTAL
• carbon emissions (CO2)
• criteria air pollutants (SO2, NOx, PM)
• water
• land
SOCIAL
• economic development (jobs and tax revenues)
FINANCIAL
FINANCIAL RISK
• fuel price hedge
• market price response
For the purposes of this report, value is defined as net value, i.e. benefits minus costs. Depending upon the size of the benefit and the size of the cost,
value can be positive or negative. A variety of categories of benefits or costs of DPV have been considered or acknowledged in evaluating the value of
DPV. Broadly, these categories are:
10. 10
FLOW OF BENEFITS AND COSTS
Avoided Cost
Savings
Total Resource Cost
Other Customers
Solar Customers
Solar
Provider
PV Cost
$
Environmental
Benefits
Electric
Grid
Societal Cost
Utility Cost
$
$
$
Rate Impact
Participant Cost
$
Integration &
Interconnection
Costs
Incentive, Bill
Savings
Lost Revenue,
Utility Net Cost
Social Benefits
BENEFITS AND COSTS ACCRUE TO DIFFERENT STAKEHOLDERS IN THE SYSTEM
Photos courtesy of Shutterstock
The California Standard Practice Manual established the general standard for evaluating the flow of
benefits and costs of energy efficiency among stakeholders. This framework was adapted to illustrate the
flow of benefits and costs for DPV.
11. 11
ANALYSIS OVERVIEW
THIS ANALYSIS INCLUDES 16 STUDIES, REFLECTING DIVERSE DPV PENETRATION LEVELS
LBNL 2012
<40% annual energy (MWh)
CPR (TX) 2013
1.1%, 2.2% peak load
(MW)
Vote Solar 2005
unspecified penetration level
NREL 2008 (U.S.)
unspecified penetration level
R. Duke 2005
unspecified penetration level
Crossborder (AZ) 2013
Solar to be installed
2013-2015
APS 2009
0% -16% annual energy
(MWh) by 2025
APS 2013
0% -16% annual energy
(MWh) by 2025
Crossborder (CA) 2013
5% peak load (MW)
CPR (NJ/PA) 2012
15% utility peak load
(MW)
E3 2012
15%, 30% peak (MW)
AE/CPR 2006
approx. 1%, 2.5%
peak load (MW)
CPR (NY) 2008
2% - 20% annual
energy (MWh)
E3 2011
<1% peak (MW)
Study Information
Level of solar
penetration analyzed
in study
Key:
AE/CPR 2012
approx. 1%, 2.5%
peak load (MW)
Xcel 2013
140 MW installed by
2014, ~ 2% peak load
(MW)
12. AZ
NY, NJ, PA
TX
U.S.
CA
CO
APS
2013
APS
2009
Cross-
border
(CA)2013
Vote
Solar
2005
R. Duke
2005
LBNL
2012*
CPR (NJ/
PA) 2012
CPR
(TX)
2013
AE/CPR
2012
AE/CPR
2006
CPR
(NY)2008
Xcel
2013
SUMMARY OF DPV BENEFITS AND COSTS
*
The
LBNL
study
only
gives
the
net
value
for
ancillary
services
**
E3's
DPV
technology
cost
includes
LCOE
+
interconnecEon
cost
***
The
NREL
study
is
a
meta-‐analysis,
not
a
research
study.
Customer
Services,
defined
as
the
value to customer of a green option, was only
reflected
in
the
NREL
2008
meta-‐analysis
and
not
included
elsewhere
in
this
report.
****Average
retail
rate
included
for
reference;
it
is
not
appropriate
to
compare
the
average
retail
rate
to
total
benefits
presented
without
also
reflecEng
costs
(i.e.,
net
value)
and
any
material
differences
within
rate
designs
(i.e.,
not
average).
Note:
E3
2012
study
not
included
in
this
chart
because
that
study
did
not
itemize
results.
See
page
47.
BENEFITS AND COSTS OF DISTRIBUTED PV BY STUDY
INSIGHTS
• No study comprehensively evaluated the
benefits and costs of DPV, although many
acknowledge additional sources of benefit or
cost and many agree on the broad
categories of benefit and cost.
• There is a significant range of estimated
value across studies, driven primarily by
differences in local context, input
assumptions, and methodological
approaches.
• Because of these differences, comparing
results across studies can be informative,
but should be done with the understanding
that results must be normalized for context,
assumptions, or methodology.
Cross-
border
(AZ)
2013
E3
2012**
NREL
2008***
Monetized
Inconsistently Unmonetized
Energy
DPV Technology
Financial: Fuel Price Hedge
Env. Unspecified
System Losses
Grid Support Services
Financial: Mkt Price Response
Social
Gen Capacity
Solar Penetration Cost
Security Risk
Avoided RPS
T&D Capacity
Env. Carbon
Customer Services
Average Local Retail Rate****
(in year of study, per EIA)
Env. Criteria Air Pollutants
A Review of Solar PV Benefit & Cost Studies, 2nd edition
13. 13
KEY DRIVERS OF VALUE
METHODOLOGIES
For example:
• Capacity value assignment
• All MW v limited to system capacity
needs
• Assumed planning requirements
• Marginal resource
• Dispatch simulation v single
resource
• Treatment of inconsistently
monetized values
• Included or not
• If so, at what value
LOCAL CONTEXT
For example:
• Solar resource
• Coincidence of solar
production with system
demand
• System characteristics
• Generation mix
• System investment needs
• Organized market access &
structure
• Energy-only v separate
capacity market
• Availability of market data to
estimate marginal value
• Ancillary services markets
INPUT ASSUMPTIONS
For example:
• Fuel price forecast
• Forecast source
• Reflection of price volatility
• Assumed carbon price
• Included or not
• If so, at what price
• Level of solar penetration
• Low v high
• Changing resource mix
There is a significant range of estimated value across studies, driven primarily
by differences in local context, input assumptions, and methodological
approaches.
14. 14
IMPLICATIONS
• There is some agreement on overall approach to estimating energy and capacity value, but
significantly less agreement on overall approach to estimating grid support services and
currently unmonetized values including financial and security risk, environment, and social value
• In all future work, transparency is key—around assumptions, perspectives, sources and
methodologies—and must explicitly decide if and how to account for each broadly recognized
source of value
• Standardized best practices should be possible to some degree and will help ensure
accountability and verifiability of benefit and cost estimates
• Studies have implicitly assumed historically low penetrations of DPV, and have largely focused
on DPV in isolation, but a confluence of factors will require a consideration of DPV’s benefits
and costs in the context of a changing system
• With better recognition of the costs and benefits, pricing structures and business models can
be better aligned to enable greater economic deployment and lower overall system costs
15. Calculating the Costs and Benefits
of Distributed Solar Generation
Jason B. Keyes & Karl R. Rábago
Sep. 4, 2013
16. Authors
• Karl R. Rábago
– Principal, Rábago Energy LLC
– IREC Board Member
– Experience as TX PUC Commissioner, utility executive,
federal executive, consultant and advocate
• Jason B. Keyes
– Partner at Keyes, Fox & Wiedman LLP
– Representing IREC in net metering dockets
– Co-authored prior IREC net metering valuation study
17. Reasons for IREC Report
• Growing interest in DSG valuation
• Utility proposals for value-based rates and tariffs
• Conflicting prior study results
While calculated values will differ from one utility to the
next, the approach used to calculate the value of
distributed solar generation should be uniform.
21. Overview of Report
• Types of Studies
– Studies of studies
– Cost-benefit analyses
– Value of solar
• Suggested approach (RIM + SCT)
• Benefits and costs
Not for a specific policy – useful for incentives, net energy
metering, Value of Solar Tariff, FiT
22. Key Structural Issues
• What discount rate is used?
• Is the study considering all generation or only exports?
• What timeframe is used?
• How are future load shapes determined?
• How much DSG is assumed?
• Are the inputs publicly available?
• Whose benefits are considered?
• Are the costs and benefits levelized?
23. Benefits – Energy & Capacity
• Are energy benefits based on the utility not running a CT
or a CCGT?
• Are line losses based on marginal losses?
• Are generation capacity benefits included from day one?
• Are T&D capacity benefits included?
24. Benefits – Other
• Are ancillary services included?
• Is a fuel price hedge value included?
• Is a market price response included?
• Is increased grid reliability and resiliency included?
• Are the utility’s avoided environmental compliance
costs included?
• Are societal benefits included?
25. Costs
• Is lost revenue or utility cost the basis of the study?
• Are administrative costs supplied by the utility?
• Are interconnection costs included?
• Are integration costs based on high penetrations?
26. Thank You
Jason B. Keyes & Karl R. Rábago
jkeyes@kfwlaw.com
karl@rabagoenergy.com